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Sonntag, 23. Oktober 2016

Venezuela's state-controlled oil company, PDVSA, said today is the final day for some of its bond investors to accept a swap deal, and if the bondholders do not accept, then it could result in default.

PDVSA Risks Bond Default - Oil Markets Daily

Summary

Recent political moves made by President Maduro could escalate political tensions and result in more riots.

Venezuela is such a basket case. It's hard not writing an update on it every other week as some material news comes out that could drastically change the oil (NYSEARCA:USO) supply landscape.

Venezuela's state-controlled oil company, PDVSA, said today is the final day for some of its bond investors to accept a swap deal, and if the bondholders do not accept, then it could result in default.

The bond exchange is a total nominal value of $5.3 billion and has gone through three extensions. There have been no announcements as of yet as to what the bondholders will do, but some have already speculated that another extension might be possible as detailed by Barron's here.

What's more important to us, however, is not the extension or the credit crunch that's inevitably coming for PDVSA, but what the government is doing about the current economic environment. We know that the fiscal breakeven for Venezuela is somewhere around $150 oil, but with inflation potentially reaching 1,600% next year, the bottom might have already fallen out for Venezuela.

A recent move by President Maduro to suspend the recall referendum also brings about a new element of disorder to the Venezuelan economy. This move to suspend the recall referendum is the most obvious sign that Maduro is not interested in entertaining the idea of a political transition. This will likely fuel the fire needed for the opposition to gather the support it needs to overthrow the government. The transition will likely be very messy as PDVSA is dominantly controlled by Maduro and his allies. If there's any sign that Maduro will be kicked out of office, we suspect that he will take PDVSA down with him, which could point to more unexpected supply outages.

Currently, the consensus believes Venezuela's oil production is around 2 million b/d, but traders we talked to show us implied production figures of below 1.9 million b/d now. The 100k b/d decline continues and we forecast that Venezuela will exit 2016 at 1.7-1.8 million b/d.

If the default does happen, and the political chaos continues, Venezuela is at further risk of seeing more production declines. The momentum of the decline would be too late to stop as fields continue to be neglected and result in more supply outages than the current consensus believes.

The issues in Venezuela is a serious one. And whatever comes next for Venezuela has very meaningful implications to the oil markets.

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